The Insurance Regulatory and Development Authority of India (IRDAI) has proposed a major overhaul of insurance distribution economics, including specific caps on commissions paid to banks, brokers and agents. The consultation paper, Recalibrating Economics of Insurance Distribution, seeks to bring back firm commission ceilings around three years after IRDAI replaced product-level limits with an overall Expenses of Management framework. The regulator says distribution costs have grown faster than premiums, increasing the cost burden on policyholders.
Under the proposal, remuneration would increasingly reflect product complexity and the effort required to sell and service a policy, rather than sales volume alone. For example, first-year commission on individual life policies could range from 5% to 20% for intermediaries and 6.25% to 25% for agents, depending on premium-payment terms, while pure-term insurance would have higher limits of 25% and 30% respectively. Health insurance distributors would generally face caps of around 15% for new policies, with agents allowed up to 20%. Banks and non-bank lenders distributing insurance alongside loans would face significantly lower caps of 2% to 5%, while making insurance compulsory for obtaining credit would be prohibited.
The proposal also targets insurer expenses and sales practices. Life insurers would be required to bring Expenses of Management down to 15% of gross direct premium income within two years and 12.5% within five years, with a longer-term target of 10%. For general insurers, the limit would decline from 30% to 20% over five years. IRDAI has additionally proposed individual-level sales traceability, publication of proven mis-selling incidents, commission clawbacks and mandatory cost audits for insurers and large distributors. Websites would also be prohibited from using dark patterns, such as requiring personal information before displaying product details. The consultation remains open for stakeholder comments until October 25, 2026.
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